Investors who didn’t own gold in 2019 could be kicking themselves after an 18% rise in prices for the year. But it might not be too late to join the rally.
Some gold bulls even see the price of bullion breaking the record high set in 2011, when it briefly topped $1,900, roughly 25% higher than current levels. Robust buying by central banks, a weakening of the U.S. dollar, and growing political tensions could combine to fuel further gains.
“If we think about it in percentage terms, to imagine gold making a new all-time high sometime in 2020 doesn’t seem like such a stretch,” says John Roque, a technical analyst with Wolfe Research in New York City.
Roque and his colleagues see a repeat of historical chart patterns in bullion prices playing out. “We believe gold will (a) break out above resistance at $1,557, (b) work to $1,650, and then (c) make a new all-time high,” says a recent Wolfe Research report. An ounce of gold recently fetched $1,515, according to the London Bullion Market Association, a trade group.
Other investment firms see higher prices. Swiss bank UBS has a base-case scenario of $1,600. New York-based commodities consulting company CPM Group and asset-management company State Street Global Advisors see potential highs of $1,600 and $1,650.
Investors looking to capitalize on the likely continued rally should consider buying the SPDR Gold Shares exchange-traded fund (GLD), which holds bars of solid bullion. Alternatively, try purchasing active-month gold futures contracts on the CME.
A big part of the bulls’ case is that buying by central banks will continue to absorb a lot of the metal. Collectively, central banks have purchased an average of more than 500 metric tons of the metal each year from 2011 through 2018, according to World Gold Council data.
Initial data suggests a similar pace for 2019. Better still, the trend looks set to continue in 2020, says George Milling-Stanley, chief gold strategist at State Street. Central banks “feel they are seriously overweight in dollar assets,” he says.
The U.S. election, trade tensions between the U.S. and China, and the pending impeachment trial of President Donald Trump could also act as catalysts for movements in the price of gold.
“There will be a lot of volatility in markets ahead of the elections, and that will be helpful for gold,” says Rohit Savant, director of research at CPM Group.
A decline in the value of the dollar would bolster gold prices, notes David Ranson, director of research at financial analytics company HCWE & Co.
And Trump has repeatedly suggested that the dollar should be cheaper to help exports. Gold is priced in dollars.
“Once the dollar becomes unstable in a downward direction, the process tends to continue,” Ranson says.
An analysis of weekly price data showed a minus 0.62 correlation between the dollar index and the price of gold over the decade through Dec. 23.
Investing in gold carries risks. It doesn’t provide investors with dividends, and the market is relatively thin compared with that of large stock funds like the SPDR S&P 500. That can make prices volatile. In other words, don’t be surprised if the gold market gives you a wild ride.
For now, however, the path for gold prices looks to be headed upward.
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